The History of the Italian Pension System Until 1992

The History of the Italian Pension System Until 1992

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The History of the Italian Pension System Until 1992

In this paper the origin and the main developments until the reforms (in the 1990s) of the
pension systems in Italy is discussed. It is an area symbolized by frequent changes in the
systems. The pension systems were lacking a clear view how to properly deal with occurring
problems. This was also due to the politics. For instance, from 1922 to the end of the Second
World War Mussolini with his fascistic ideas ruled the country. The first republic (1946 until
1992) had to clean up the mess after the war and in the remaining years, politics were
highlighted by social conflicts and political instability. In 2004, in Berlusconi’s second period as
prime minister, 59 governments served since the second world war. The average duration of a
government since then was thus less than a year.
The first pension plans were established for public employees in the second half of the
nineteenth century. A voluntary pension scheme for private employees, to provide old age and
disability benefits, was introduced in 1898 and was made compulsory in 1919 (Franco, 2001: 5) in which employees had to pay via a payroll tax. Benefits were calculated on paid contributions.
This funded scheme was established and supervised by the INPS (National Social Security
Institute). In 1942, survivors benefits were enclosed in the schemes.
The schemes had to change in a PAYG scheme after the Second World War. This was due to the
effects of inflation and to the use of pension fund assets to support government finances
(Franco, 2001: 5). The transition was completed in 1952, when new rules were eventually
introduced, at the same time a guaranteed minimum pension level was also introduced
(Brugiavini and Galasso, 2003: 11). In the remaining years of the fifties nothing worth
mentioning occurred.
The seniority (long‐service) pensions, which can be taken at any age provided that the worker
has a minimum contributory period, were established in 1956 for public sector employees and
in 1965 for private sector employees and self‐employed workers (Franco, 2001: 5). The
seniority pensions turned out to cost quite a lot of money.
Public pension coverage was extended to the self‐employed, to work‐disabled citizens (in 1966)
and to elderly persons with low incomes in 1969. In 1969 pension benefits for private sector
employees started to be computed on the basis of earnings (final salaries) (Brugiavini and
Galasso, 2003: 12). As a result, the distribution of income between active workers and the
retirees straightened. During the same time, the pension schemes broadened their social

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functions. Pensions were used to provide income support to people working in agriculture, in
the country’s poorer regions and to elderly workers with short contributory periods (Franco,
2002: 5).
Pension schemes were not monitoring properly at the time, resulting in incorrect data.
Applications were not investigated properly. Furthermore, there were not a lot of requirements
for approval to the pensions. For example, many not disabled people enrolled in a disability
pension when they did not have a job. Between 1965 and 1975 disability pensions represented
40% of the new pensions paid to private sector employees and 70% of those paid to the selfemployed.
The number of disability pensions increased from 2 million in 1960 to 7.2 in 1980, far
exceeding the number of old‐age pensions (Franco, 2001: 6).
The 1980s saw the first steps towards rationalising the rules, prompted by increasing
expenditure on retirement provisions leading to difficulties of public finances (coupled with a
growing explicit debt) (Brugiavini and Galasso, 2003: 12). This trend continued by introducing
means testing in 1983, to get approved to the minimum pension level and the disability
pensions. In 1984, it became even more difficult to require acceptance for disability pensions.
The criterion for eligibility was changed from loss of earning capacity to work disability (Franco,
2002: 5). Although the first steps were made in the 1980s a demand for a whopping reform was
rising. The high amount of small changes resulted in the creation of new problems.
Several factors delayed the implementation of the pension reform: the long‐term nature of
pension contracts, the short‐term perspective of Italian politics, the lack of uncontroversial
projections and agreement on the direction of reform, the segmentation of the Italian pension
system and the high level of the pension wealth (Franco, 2001: 7).

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